Commercial Property and The Current Economy

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These are Better Indicators of our Economic Well-beingLAST WEEK, we explored just how the misuse of statistics by some commentators was distorting of the truth about Australia’s economic well-being, on a state-by-state basis.

So it is with several other indicators, as David Bassanese pointed out in a recent article (AFR: 22 March, page 36).

Many commentators are pushing for interest rates reductions, because the “economy is soft”. And they list …

  • The high dollar’s effect upon manufacturing; plus
  • A weakness within the retail & housing sectors …

… as the reasoning behind their arguments.

However, citing evidence from just the weakest three sectors within the economy hardly supports solid reasoning.

While retail sales tend to grab the headlines, this sector can be volatile and represents only 40% of household consumer spending. Plus, it is only reflects about 25% of Australia’s economy.

There are more-reliable Indicators

Probably the most consistent indicator would be the unemployment rate, as a guide to overall economic well-being.

The current low rate (at 5.2%) would suggest that our economy is operating at fairly close to full capacity at present.

In fact, any increase in activity would most likely to put pressure on wages and therefore, inflation.

Another good industry-wide indicator is the NAB Business Conditions index. You can see from the chart above, this currently sits close to the long-run average; and is trending up once again.

And this is consistent with the overall Australian economy growing at an average rate — even though there are differences between some sectors.

Bottom Line: Despite retail sales being down during the December quarter, consumer spending still grew at a reasonably healthy 3.5% over the full 12 months.

Furthermore, the unemployment rate has only edged up 0.6 percentage points over the past 4 years — even with the general slowdown, following the GFC in 2008.

Therefore, as a Commercial property investor, you need to understand the underlying strength of the Australian economy. And position yourself for a rapid turnaround in confidence, as more overseas countries demonstrate they have definitely entered their recovery phase.

 

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